Consider two stocks M and N with a standard deviation of 25% and 40% respectively. The returns of the two stocks are perfectly negatively correlated. Proportion of investment to be made in stock M for zero variance portfolio is____ a. 62% b. 38% c. 50% d. Cannot be determined

Q: An investor can design a risky portfolio based on two stocks, A and B. The standard deviation of…

A: The question is based on the concept of Minimum variance portfolio. A minimum variance portfolio is…

Q: A portfolio is comprised of equal weights of two stocks labeled Stock X and Stock Y. The covariance…

A: Covariance between stock X and stock Y (CovX,Y) = 0.10 Standard deviation of stock X (SDX) = 0.50…

Q: 3. Consider three stocks A, B and C and a market index M with the following prices: Year то T1 T2…

A: Note: This question has several sub-parts. The first three have been answered below

Q: 3. Consider two stocks A and B with expected returns of 6% (stock A) and 8% (stock B). The matrix of…

A: "Hi, Thanks for the Question. Since you asked multiple sub part question, we will answer first three…

Q: What is the total risk of portfolio as per Sharpe's Single Index Model if standard deviation of…

A: Total Risk = Systematic Risk + Unsystematic risk Systematic Risk = Beta 2 * SD of Market2 = (1.27)2…

Q: he investor invested in stocks and bonds to form a minimum variance portfolio. The return and…

A: A minimum variance portfolio indicates a well-diversified portfolio that consists of individually…

Q: What is the standard deviation of the following portfolio if the coefficient of the correlation…

A: Given Information:Variance A is 10% Weight of portfolio A is 0.30 Variance B is 20% Weight of…

Q: You have a portfolio of 4 stocks with equal shares invested in each stock. Variancesof individual…

A: a) A portfolio of 4 equally weighted stocks with variance being 16 and correlation between each pair…

Q: Suppose that Jerry Tan has surplus funds to invest in both stocks, Alpha and Beta. He has decided to…

A: For Stock: Expected return E(r) = ∑p*r Standard deviation = √∑p*(r-E(r))2  For portfolio: Expected…

Q: Consider the following information for stocks A, B, and C. The returns on the three stocks are…

A: Since you have posted a question with multiple sub-parts, we will solve the first three subparts for…

Q: The investor invested in stocks and bonds to form a minimum variance portfolio. The return and…

A: FORMULA FOR MINIMUM PORTFOLIO VARIANCE : WA=σB2-corrA,B×σA×σBσA2+σB2-2×corrA,B×σA×σBWB=1-WA Where,…

Q: Consider the following information: Rate of Return If State Ocurs State of Probability of State of…

A: Introduction: The expected return of stock refers to the return that is anticipated on a stock. A…

Q: Your portfolio is invested 30 percent each in A and C, and 40 percent in B. What is the expected…

A: Given:

Q: Suppose Stock A has an expected return of 15%, a standard deviation of 20%, and a Beta of 0.4 while…

A: The desired gain and the standard deviation are the two different methods that are used to analyze…

Q: Stocks A B and C display the following parameters: Expected Return A  15%         Variance 9%2…

A: Expected return of A (Ra) = 15% Standard deviation of A (Sa) = Square root of variance = 3% Expected…

Q: Consider two stocks P & Q [3]     Expected Return (%) Standard Deviation (%) Stock P 16% 25%…

A: Stock P Stock Q Expected Return(E(r)) 16.00% 18.00% SD[r] 25.00% 30.00% The return on the…

Q: Consider the two (excess return) index model regression results for A and B:   RA = 0.8% + 1RM…

A: Residual standard deviation is measured by using the firm specific risk.

Q: Consider two high-risk stocks, X and Y. The expected return on stock Y is 16%, with a standard…

A: Computation of Expected Return as follows: The expected return of the portfolio =Weight of…

Q: An investor can design a risky portfolio based on two stocks, A and B. The standard deviation of…

A: The weights of assets A & B in minimum variance portfolio is given by the expressions below. The…

Q: The expected return for Asset Y is 24%, and it has a standard deviation of 14%. The expected return…

A: Standard deviation is one of the measure of risk. Less the standard deviation , less risky the asset…

Q: If standard deviation of security A is 27% and security B is 18%, the correlation coefficient…

A: Standard deviation of security A (sdA) = 27% Standard deviation of security B (sdB) = 18%…

Q: Consider the two (excess return) index model regression results for A and B.  RA= 0.9% + 1.1RM ,…

A: Given: RA= 0.9% + 1.1RM , R-square = 0.590, and Residual Standard Deviation = 11% RB= -1.4% + 0.6RM,…

Q: The probability distributions of expected returns for stocks XMX and BMX are as follows: Probability…

A: Let Pn = Probability of each state Xn = Return of XMX in each state Bn = Return of BMX in each state…

Q: The index model has been estimated using historical excess return data for stocks A, B, and C, with…

A: "Hi there, thanks for posting the questions. But as per our Q&A guidelines, we must answer the…

Q: Consider the following information: State of Rate of Return if State Occurs Probability of State of…

A: The expected return on the portfolio indicates the returns on investment of investors. It's…

Q: Suppose you create a portfolio with two securities: Security Security Weight (%) Security…

A: Portfolio means a bunch of assets or investments. To maximize the profits, investors invest their…

Q: You have a portfolio of investment which consists of Stock A with a return of A% and Stock B with a…

A: According to the Law of Sum of variances, variances of two stock can be added but that of standard…

Q: Consider two risky assets that have returns variances of 0.0625 and 0.0324, respectively. The…

A: The provided information are: Return variancesσ12  and σ22 are 0.0625 and 0.0324. Two are equal…

Q: Use the following information: ElrXOM E[TMS)=29.7%, standard deviationMS = 35.2% = 15.6%, standard…

A: Weight of XOM is 0.43 and weight of MS is 1-0.43= 0.57

Q: The market and Stock J have the following probability distributions:  ProbabIlity         rM rJ…

A: Return and risk are the two main components of the investment. Return means earning an additional…

Q: Under which of the following scenarios, the minimum variance portfolio that contains two stocks has…

A: Assuming weight of the first stock and the second stock in the portfolio as (W) and (1 - W) Standard…

Q: Suppose an investor wants to invest either in the common stock of Square Corporation or Beximco…

A: In this question coefficient of variation should be solved in order to analyse the risk to return…

Q: Consider the following information about three stocks: Rate of Return If State Occurs Probability of…

A: Hi There, Thanks for posting the question. As per Q&A guidelines, the solution for first three…

Q: Required: a-1. Calculate the variance and standard deviation of each stock. a-2. Which stock is…

A: Given:

Q: Consider the following information: Stock Reliance HUL Expected return (%) 25 22 Variance of…

A: Coefficient of correlation is the relation between two stocks, its value can go from -1 to 1. And if…

Q: If the variance of the portfolio is 324, Coefficient of determination of the portfolio with market…

A: Systematic risk of a portfolio refers to the risk that affects entire market and not an individual…

Q: Consider the two (excess return) index model regression results for A and B:   RA = 0.8% + 1RM…

A: a)Firm Specific risk is measured by Residual Standard Deviation

Q: An investor can design a risky portfolie based on two stocks A and B. Stock A has an expected retun…

A: Portfolio variance is a measurement of risk, that tells about real returns of stocks in a portfolio…

Q: Estimate the mean and variance of this portfolio, as well as its standard deviation.

A: Mean return of the portfolio = Weight of Mercedes * Mean return of Mercedes + Weight of BMW * Mean…

Q: Consider two stocks, Stock D, with an expected return of 13 percent and a standard deviation of 27…

A: Minimum variance portfolio is calculated by this formula: σ stands for standard deviation, ρ stands…

Q: The following information are available: [3]     Stock A Stock B Expected Return 16% 12%…

A: Given  Stock A Expected Return - 16% Stock B Expected Return - 12% Stock A Standard Deviation - 5%…

Q: If beta of Stock A with market is 0.72 and and the market variance is 225 , the covariance between A…

A: Beta of stock A = 0.72 Market Variance = 225  Covariance between A and B = 202.5

Q: Consider two stocks, X and Y…

A: Let the weight in X = w and weight in Y = 1-w Standard deviation of X (Sx) = 18% Standard deviation…

Q: Expected returns and standard deviations of three risky assets are as follows: Expected Return…

A: Expected return refers to minimum rate of return expected from the investment. it is calculated for…

Q: Suppose that the index model for stocks A and Bis estimated from excess returns with the following…

A: Variance measures the spread of each number in the data set from the mean of the data set. The…

Q: Suppose that the index model for stocks A and B is estimated from excess returns with the following…

A: Variance of Stock: volatility  of stock is measured by variance of stock  How much a stock tends to…

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.